REG - Hongkong Land Hldgs - Strategy Update

Hongkong Land HoldingsAnnouncement

29/10/2024 09:30

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RNS Number : 0462K  Hongkong Land Hldgs Ltd  29 October 2024

HONGKONG LAND HOLDINGS LIMITED

 

STRATEGY UPDATE

 

This note updates shareholders on Hongkong Land's ('HKL') new corporate
strategy, following several months of review led by our Chief Executive,
Michael Smith. Expanded materials will be uploaded to HKL's website by close
of business (Singapore time) on 30 October 2024.

 

New strategic direction

 

Hongkong Land's aim is to become the leader in Asia's gateway cities focused
on ultra-premium integrated commercial properties.

 

From today, our priority is to simplify the business with a focus on
Investment Properties ('IP') in Asia's gateway cities, generating growth in
long-term recurring income. As a result, we will no longer invest in the
build-to-sell segment but will instead actively recycle capital out from this
business segment into new integrated commercial property opportunities.

 

Anchoring the portfolio will be the Group's existing flagship prime mixed-use
projects in Hong Kong, Singapore and Shanghai, which provide a resilient base
of significant recurring earnings from which to invest to increase our rate of
growth in Asian gateway cities.

 

This strategy will, in time, enable us to focus on a smaller number of
ultra-premium projects consistent with HKL's brand name and reputation. The
aim is to deliver enhanced shareholder value through clear long-term growth
objectives and targets supported by near-term performance metrics. By 2035,
HKL's new strategic plan and focus is expected to:

 

·    Double Underlying Profit Before Interest and Tax in a geographically
diversified manner, with no single city accounting for more than 40%

·      Double Dividends Per Share

·      Grow AuM to US$100bn with meaningful participation from third
party capital

·      Actively recycle capital of up to US$10bn

 

Evolving our business model

 

 

Our strategy will revolve around four areas of focus:

 

1.   Premium gateway assets

 

HKL will focus on investments in premium regional gateway cities, which
benefit from resilient and growing demand from blue-chip tenants and luxury
customers, typically commanding some of the highest rental incomes globally.

 

Within these cities, HKL will develop, own, or manage ultra-premium mixed-use
real estate, located in central business districts, featuring a combination of
Grade A office, luxury retail, residential and hospitality products. With a
focus on the principles of innovation, placemaking, exceptional hospitality
and sustainability for tenants, shoppers and guests, these portfolios of
assets will benefit from the "flight to quality" trends seen globally, namely
higher rents and occupancy throughout real estate cycles.

 

2.   Third-party capital

 

A new investment team will be established within HKL to:

 

a)   Source and secure new projects in premium gateway cities;

b)   Expand our IP AuM from US$40bn to US$100bn by 2035 through a
combination of LP capital partnerships, private funds and REITs; and

c)   Build a recurring fee-based income stream over time.

 

This strategy will improve our return on equity, growing the business through
development and management fees.

 

3.   Portfolio recycling

 

Our strategic decision to no longer invest in the build-to-sell segment will
help us better manage earnings fluctuations influenced by land acquisition
pace, market conditions and other external factors. We will work to accelerate
the return of invested capital where possible, while still completing all
currently committed projects to our same high standards.

 

We will also be open to selectively recycling assets into REITs and other
third-party capital vehicles. Overall, this new strategy will see up to
US$10bn of existing capital recycled over the next 10 years, generating cash
for new investments and enhanced shareholder returns. An estimated US$6bn in
proceeds will be generated from the wind-down of the build-to-sell segment. A
further US$4bn will come from the recycling of selected IP assets.

 

4.   Robust capital management

 

An updated capital allocation framework will be implemented with an enhanced
view on risk adjusted financial returns and discipline in meeting this
threshold. New project investment proposals will also be assessed against the
merits of further dividends, share buybacks and debt repayment.

 

The aim is to deliver mid-single digit annual growth in dividends per share.
As capital is recycled into cash, up to 20% of the proceeds may, subject to
market conditions, be invested in the buy-back of shares where returns on
investment exceed our weighted average cost of capital.

 

This strategy is not expected to require an increase in group net debt or
funding from shareholders, whilst preserving our investment grade
credit-rating.

 

Aligning management with HKL's future

 

To align senior management's interests with those of shareholders, a new
Long-Term Incentive Plan ('LTIP') will be introduced for senior leadership.
This plan will set a range of qualitative and quantitative progress milestones
and metrics (including with respect to HKL's share price) to incentivise the
execution of this strategy. Details of this LTIP alongside changes to the
organisation structure and management team, which align with the strategy,
will be effected by the beginning of 2025.

 

Timeline

 

The speed at which this strategy will unfold relies on our capital recycling
and management capabilities. Given the size and diversity of the Group's
existing real estate portfolio, the new strategy is expected to take a number
of years, with progress to be measured across three implementation phases.
Phase one primarily focuses on the recycling of capital and establishment of
deal sourcing and fundraising capabilities. Further phases involve the
deployment of capital into long-term IP opportunities accompanied by active
capital recycling and third-party capital initiatives.

 

Michael Smith, Chief Executive, Hongkong Land.

 

Submitted by:

Jonathan Lloyd, Jardine Matheson Limited

For and on behalf of Hongkong Land Holdings Limited

 

29 October 2024

 

www.hkland.com

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